Summing it up

• Rule of Thumb:
• Your mortgage payment should not exceed 28% of your gross monthly income.

• Total debt obligations (mortgage + other debts) should be below 36% of your gross monthly income.

• Consider All Costs:

• Property taxes, homeowners insurance, and maintenance costs impact affordability.

• Closing costs and other fees should also factor into your budget.

• Mortgage Affordability Formula:

• For example, if your monthly gross income is $7,000,
  • Mortgage payment limit = $1,960 (28%)
  • Total debt payment limit = $2,520 (36%)

Factors Influencing Your Mortgage Limit

• Credit Score
• A higher score qualifies you for better rates.

• Minimum scores range from 580 - 620 for most loans.

• Debt-to-Income (DTI) Ratio

• Ideal DTI: 36% or less.

• The lower your DTI, the more you can allocate to a mortgage.

• Down Payment

• Higher down payments reduce monthly payments and may eliminate PMI if over 20%.

• Typical FHA loans require 3.5% down, while VA loans often have no down payment.

• Interest Rates and Points

• Paying points can lower your interest rate, reducing monthly payments.

• Additional Costs

• Include homeowners insurance, PMI, HOA dues, and upkeep expenses.

Should You Rent or Buy?

• Renting is often more affordable in the short term but offers no equity.
• Buying builds long-term financial stability and equity but involves upfront costs and ongoing maintenance.

Example Scenarios

• Annual Income: $100,000
• Mortgage affordability = $300,000 or less.
• Monthly Gross Income: $7,000
• Max monthly mortgage payment = $1,960.

Pro Tips for Determining Affordability

• Use tools like mortgage calculators to estimate monthly payments.
• Prioritize saving for a larger down payment to reduce monthly costs.
• Evaluate your lifestyle and financial goals - don't overextend your budget.

Remember: Owning a home should align with your financial health and personal goals, not stretch your resources thin!

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